In July, Luxembourg – the second largest investment fund in the world after the United States – introduced a bill to update the March 1, 2019 law that allows the registration and transfer of securities by managers. Under this act, the same problem could be based on distributed ledger technology, thus introducing truly intangible or blockchain-based securities.
In addition, a central “issuer account” (transfer agent) is required to assume responsibility, and the account holder must be approved by any member state of the European Economic Area, which means that credit institutions and investment firms other than Luxembourg can be central to the account. Owner.
Two weeks later, on August 11, the German Federal Ministry of Finance and its Federal Ministry of Justice and Consumer Protection sent a bill to introduce electronic securities. The bill aims to update both the German securities law and the related censorship law with an emphasis on blockchain strategy.
The project distinguishes between storing the central electronic record of securities by the central custodian of securities and storing records for issuing electronic bonds, which is made possible thanks to distributed ledger technologies. It also provides greater regulatory clarity: FIS will track the launch and maintenance of “decentralized records” as new financial services under the Electronic Securities Act, the German Kreditwesengesetz Banking Act and the Securities Registry Key.
Proposed changes to the legal framework using blockchain and other new technologies aim to strengthen Germany as a business center and increase “transparency, market integrity and investor protection”.
Currently, the bill is limited to bonds, but could be extended to any securities, including stocks and mutual funds. The goal is to receive comments from German states by September 14 and to adopt the rules later in 2020.
The bill also provides for several amendments to the publishing law, preservation law and other rules so that all electronic securities are treated as non-digital old securities. Thus, the bill removes a major regulatory obstacle to the massive adoption of digital assets.
What does this mean for the industry?
The highly conservative German government is taking the digital transformation of stock markets very seriously and recognizing the advantages in terms of speed, settlement time, and transparency that blockchain technology can offer. After updating the current anti-money laundering / money laundering legislation to allow banks to possess and sell cryptocurrencies to institutional and private clients (as of January 1), they have now turned their attention to the physicalization of securities through use. DLT licensed or unlicensed blockchain technology (for example, public Ethereum). The bill actually states that an electronic guarantee, for example in the form of a token, has the same rights and legal protections for investors as a paper certificate.
This new project stimulates a philosophy that there is no need for radical new legislation – rather, the legislation should be technologically neutral – with the clarification of the legal link between the true origin and its representative digital code. Of course, more could be done – for example, offering machine-readable policies that update compliance programs without manual intervention or with minimal intervention.
At the same time, blockchain projects continue to provide thoughtful leadership and remove technology barriers by combining secure digital identity with robust online privacy (such as private transactions on public chains) and compliance plans that link digital attributes and certificates with automated policy enforcement. Both in the field of cryptocurrencies (for example, compliance with travel regulations for the Anti-Money Laundering Financial Action Task Force) and digital securities.
Finally, the digital transformation using blockchain technology will result in significant cost savings by eliminating many erroneous manual processes, tightening compliance, and improving crime prevention through increased transparency, wider global access to high-quality assets, and thus greater economic integration.